Money Management for Seniors in Retirement
by Michael Longston for Aging Collective
Each year thousands of baby boomers enter retirement, but most are doing so in straitened circumstances. On average, they have around $300,000 saved for retirement. That may sound like a lot, but most will need twice that amount to cover their living expenses for the remainder of their lifespans. Even with the help of Social Security and Medicare, most seniors are concerned they may outlive their money. Some people are worried sick about it, becoming anxious and afraid. What can they do about it? Here are few ideas from Michael Longsdon of ElderFreedom.net.
The average American investor makes very conservative investments in their defined contribution plan. Most of us are inherently risk averse, choosing to shield and shelter their funds in low-earning, safer investments. If you are in reasonably good health, it may be wise to move some funds to higher-performing equities.
Get a Financial Checkup
AARP advises making an appointment with your money manager to go over your asset portfolio and do a risk assessment. Consider getting a second opinion from their competition. Pay special attention to the fees that are being assessed to your account. Nearly half of all investors who think they are not paying fees actually are, and high fees tend to be associated with worse returns on your investments.
If you are still working, look into “catch up” programs for investing in your IRA or 401k; people over the age of 50 are allowed to make additional contributions of as much as $6,000 a year over the regular limit. Go over your life insurance policies. What was a good idea 10 years ago may not be the most cost effective plan right now. You may even be able to sell your policy at a profit. Your financial advisor can help you determine whether it is best to keep a particular policy, or to move to a different financial product.
Make a Budget
Surprisingly, 60 percent of seniors do not routinely live on a budget. But drawing up a budget makes you examine your spending habits, and can help you get more out of your money. Budgeting allows you to plan your expenditures, and to set aside money for emergencies. On average, as The Balance points out, people who budget spend less and save more. Not knowing where your money goes each month is stressful. Just the simple act of making out a budget will help you feel more in control, reducing anxiety and worry.
Improve Your Financial Literacy
Being undereducated about our investments and our spending habits has a detrimental impact on our financial security as we age, and can leave us prey to financial fraud and scams. Educate yourself on what types of investments there are, how they differ and when you may collect from them.
The more you understand about your finances, the better you’ll feel about them. Many people don’t realize that if they choose to take early retirement at 62, they’ll lose out on 25-70 percent of their potential social security income. According to Fox Business, many people lose money on their IRAs because they don’t realize there is a minimum distribution they must start taking from the account when they reach 70 and a half years of age. Failure to make this distribution can cost you 50 percent of your money. So if you needed to take a required minimum distribution of $4,000, but failed to do so on time, you would have to cut the IRS a check for $2,000.
If you’re a military service member, you should also understand all the financial benefits available to you. A VA home loan, for instance, provides the opportunity of getting an affordable mortgage with zero down-payment requirements, no private mortgage insurance requirements,
lower interest rates, and lower credit score minimums.
Understanding your finances, and managing your money, will improve the quality of your life. Learn to recognize potential scams and mismanagement. Know what you’re paying for your financial management services, and take advantage of the tax system to maximize your income and minimize your tax liability. By taking control of your finances, you can have more control over your life in retirement. Knowledge really is power.
Michael Longsdon is the founder of ElderFreedom, which advocates for the rights and support of seniors. Through his site (http://elderfreedom.net/), he provides tips to seniors on how to downsize and age in place.
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